A federal judge has ruled that PricewaterhouseCoopers was negligent in the events that led to the 2009 collapse of Colonial Bank. The judge found that the world’s second-largest professional services firm could have done more prior to the bank’s failure, which was caused by a $2 billion fraud perpetrated by Florida-based mortgage lender Taylor Bean & Whitaker.
In a 93-page decision issued last month, U.S. District Judge Barbara Jacobs Rothstein wrote that Colonial was victimized by “one of the largest and longest-lasting bank frauds in American banking history,” which PwC failed to detect. This led to a $2.8 billion cost to the Federal Deposit Insurance Corp., which sued PwC after it had given Colonial BancGroup “clean audits” for years. However, many of Colonial’s loans to Taylor Bean & Whitaker were secured against non-existent assets, leading to the failure during the economic recession that began in 2008. The jury’s decision means PwC could potentially face hundreds of millions of dollars in damages. Colonial was one of the 25 biggest banks in the U.S. at the time of its collapse, with more than $26 billion in assets and offices in Alabama, Georgia, Florida, Nevada and Texas.
Judge Rothstein rejected four of the five main claims made by the FDIC and Colonial, and that numerous employees at the bank “actively and substantially interfered” with its audit. PricewaterhouseCoopers says it “looks forward to the damages phase where the FDIC will bear the burden of proof on what remains of their inflated damages claim. Lee Farkas, the former chairman of Taylor Bean & Whitaker, went to prison over the fraud. Investigators found TBW was running up overdrafts in the account it used to fund mortgages and Colonial employees hid them from regulators and auditors. Several Colonial employees also went to prison as a result of the case. Colonial was seized by the government as insolvent and sold to North Carolina-based BB&T Corp.
Source: AL.com, Wall Street Journal and The Tampa Bay Times
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